Skip to main content

tv   Power Lunch  CNBC  September 9, 2016 1:00pm-3:01pm EDT

1:00 pm
that fear. get the vix up to a little bit higher. recognize that these levels of the consumer products -- come on, steph. 2.3 does not protect you. >> i'm there with you. >> you want to like kelloggs, yeah. you get 2.6. what is at 2.6? >> thanks for being here. the 2.6 seconds overboard right now. >> thank you, guys. >> "power lunch" begins now. and we will gladly give you those seconds any day of the week, scott, jim and the "fast money" half-time crew. welcome everybody to "power lunch." i'm tyler mathisen. this is a day unlike any other we've seen in a couple months on wall street. here's what's on the menu today. summer seemingly over now on wall street. fear is back. stocks are falling today triple digits, as signs say interest rates could finally be on the rise. big bank downgrade, the wells fargo fine leading one top bank analyst to slap a sell rating on
1:01 pm
the stock. he'll be here to explain. and the sooner state oil boom. brian sullivan drills down in america's hottest new energy hub, oklahoma. and he will join us live. "power lunch" starts right now. welcome to "power lunch." i'm melissa lee. stocks are down big as fears of a coming rate hike rattled the markets. take a look at where we stand in the markets right now. dow, s&p, nasdaq all near session lows, for dow 230 point loss, nasdaq being hit hard as people are taking profits in technology down by 1.6% now. big moves also in rate sensitive sectors, utilities and reits solidly in the red right now, michelle. yeah, they sure are. i'm michelle caruso-cabrera. here's what else is happening at this hour. general motors recalling 4 million vehicles worldwide for software defect that has been linked to at least one death. the white house vowing to hit north korea with new sanctions following a nuclear test.
1:02 pm
and the house unanimously passing a bill allowing families of 9/11 victims to sue saudi arabia. president obama has threatened to veto the legislation. checking on oil, it's getting impangted by the rise in the dollar and interest rates today just like stocks are, crude down nearly 3% and that's having a big impact on the energy stocks. brian sullivan live in oklahoma city digging in on that for us today. brian, what do you have out there? >> reporter: michelle, that's exactly the reason why we're here. what if this is the new reality? what if the oil bulls are wrong and we're not going to 60 or 70 in the next 12 to 18 months? what if we stay around the $40 or $50 range or go lower? is anybody making money? we've talked a lot about the permian play, pioneer for one, but we had to come to oklahoma. there are two regions here, the scoop and stack. we'll explain more about what those names mean coming up in just a bit, that may be overall the lowest cost production region in all of america. we've got a big show. we've got the ceo of devon
1:03 pm
energy, ceo of warwick energy, that's where we are today. big show from oklahoma. who's making money at $45 to $50 a barrel? we're going to find out. by the way, rig counts, if it's a friday, they just came out. in fact, oil rigs up again. so we were flat basically the last two weeks. we saw a gain of i think 7 oil rigs this past week. so the drillers are back in action. we were on one of the new drilling rigs by the way yesterday. we got a lot of good stuff coming up from oklahoma as well. michelle, back to you right now. >> going to be great. thank you, brian, looking forward to it. market has broken out of its non-volatile slumber. remember we've been talking days where we haven't had a 1% move to the upside or downside? that's different today. bob pisani at the nyse with what's driving the action. it's interest rates, isn't it, bob? >> absolutely. remind everyone why exactly the dow is down 208 points. the main catalyst mr. rosengren at the federal reserve. everyone surprise he's been
1:04 pm
dovish in the past. gund lock talking about interest rates have bottomed and be aware of that. and ecb started pat and started really the day before. let's look at the sectors and of course the ones hit most are the most interest rate sensitive. utilities and telecom and consumer staples that often pay high dividends. they compete for yield. beneficiaries, well, you can bet insurance companies have had had a terrible time in this slow interest rate environment are doing a little better today. so your metlife and lincoln and prudential, even like deutsche bank for example, citi group as you can see most of the u.s. banks are down fractionally underperforming the rest of the markets. big risk off day, but you think there'd be bigger moves in some of the high beta names. remember big market leaders recently like google for example or e-bay. they're all to the downside but not dramatically. energy stocks here, big up day yesterday on the inventory drawdown. not today though.
1:05 pm
most of the big names down three, four or 5%. back to you. >> bob, thank you very much. let's talk more now about today's market action. joining me now, john staltfus, chief investment strategist with oppenheimer management, also cnbc contributor tim seymour, gentlemen, welcome. good to see you. john, can stocks continue to rise if interest rates are? >> i think so, tyler. in the past they sure have. if you look at the last time the fed raised rates from the end of june '04 to the end of june 2006, the s&p was up about 11%. my recollection is the smalls and mids were up around 20% a piece. initially the market gets a little bit nervous. but then once it realizes higher rates mean things are getting better, perhaps we can see some better options. >> tim, is this true if we're not just looking at a one and done or two and done rate move but the change of a cycle to a longer term process of raising rates? >> right. well, tyler, that's what was concerning about rosengren's
1:06 pm
comments. this didn't sound like get one or two outd of the way in 2016. this sounded like the fed is talking about some endemic inflation problems, which a lot of people can make that argument for and that this is a rate hike cycle. but as john's pointing out, you can't have it both ways. the people that have been bearish on stocks have been people say rates are going lower, the global economy's nikkei and if anything this is endorsement for -- yes, we may have bubbles in certain asset prices, obviously what the fed was trying to engineer. is the fed going to suddenly go to the other spectrum of being overly extreme when no one thinks they should be an economy can withstand five or six or zempb ra seven rate hikes. >> so, you sound sanguine. >> yeah. >> and yet if i'm going to make a choice about sectors, you see the way utilities are acting today at this minor whiff, if we really start to think this is going to be reality, should you avoid those sectors now? >> we've been underweight utilities and telcos since the
1:07 pm
beginning of the year and underweight energy. we're long the -- and overweight cyclicals, industrials, materials, technology and consumer discretionary. >> and specifically utilities because they're interest rate sensitive. >> because they're interest rate sensitive. in addition to that as the year progressed they've become increasingly overvalued. they'd already given back about a quarter of their gains from the start of the year to june as of last friday. >> doesn't the hawkishness this time around feel a little bit different? because there's this notion that we're in a state where it's very critical. there are two paths to be taken. you either step aside and risk the overheating economy and overheating asset bubbles essentially, i mean, that's what i read. those are my words, not rosengren's words, or you go the other way. it almost sounds like the fed has to thread a needle. maybe that's why markets across the board are selling off. we're not just seeing dividend yields because if things were getting better, we wouldn't necessarily see technology getting hit so hard, financials
1:08 pm
getting hit to the tune of 1% right now. >> most of what i think here when you look at this it's very simply the fed is managing the markets expectations. and last over the weekend when we wrote our weekly piece, when we looked at the vix we said with the vix at where it is, and where you had the fed, you have global geopolitical situations, the elections, all of this stuff. we said the market will not tolerate any complacency. and i guess it didn't. >> tim, jump in on the financials number one. and number two, if you wouldn't mind addressing the idea that potentially rising rates may take a little wind out of the sail of the dividend sort of fanaticism that's been at play for the last year or so. >> and they should. i mean, let's face it. consumer staples and defensives that are not utilities and mlps and things i actually think do warrant an allocation even in this environment, you're not spending 25 times for clorox. you should not own general mills
1:09 pm
and kellogg's in this environment because the growth just isn't there. but when you look at certain parts of the market, so people look at the s&p and they try to make an assessment on an entire market. underneath the surface, financials arguably have never been cheaper. if you think about where these guys are in terms of balance sheet, about to withstand credit impact from maybe rising rates and maybe the energy sector, people overdid this the first time. it will be a huge opportunity if you get that -- financials get sold even more because there's some fear that, hey, oil companies we're talking about oil at the top of the show, financials to me have probably never been better positioned for this part of the economic cycle. they've got operational leverage. i think airlines are priced at recessionary levels. interesting time. >> melissa, your question, and also to mine i think about what do you buy or sell now based on interest rate sensitivity? if you think that the entire market has been boosted by these low interest rates, everything is interest rate sensitive now.
1:10 pm
>> absolutely. we were talking to, tim, remember we were talking to j.p. morgan's head of strategy said basically there's a certain percentage in the market that was there because of what the fed is doing. so if you think that's going to start to unwind, then there's this notion embedded in stocks that that also, that premium, has to unwind. >> it's got to come out of everything. >> the helium comes out of the balloon. >> well, i think it comes primarily out of the defensives and the cyclicals have a good way to run here. >> guys, we got to leave it there alas. thank you, john. have a good weekend. tim, good to see you. now to the bond market, rick santelli knows a little about rising interest rates tracking the action at the cme. hi, rick. >> hi, tyler. indeed we can debate what central banks are going to do, not do, what they should have done, but in the end the market is voicing a bit of an opinion here. especially with the catalyst of mario draghi yesterday. stimulus and low interest rates, we're all tied at the hip with all central banks.
1:11 pm
so did mario draghi give us a glimpse into his future, or did he give us a glimpse into what he thinks the fed's future, what their rise in rates? i can't tell you that but look at a two-day of twos, two-day of tens, a week ago we settled 1.60 on the tens. more importantly start out in early june, we have broken through a range. we have been putting weights on a spring with regard to much of the sovereign market now for the last six weeks. now the spring is about to pop. and keep in mind there's margin calls going on here that may have started in europe. so as you look at six-month charts of the bunds, gilts and what you want to understand is they've added ping-pong into the olympics. this is margin ping-pong and could get a whole lot rougher. back to you. >> rick santelli, thank you. four chairs along with pressure, automaker lowering profit outlook after doubling size of massive recall. ford announcing a series of investments in the ride sharing space and partnerships with major cities to help ease
1:12 pm
traffic congestion. i sat down with ford ceo mark fields a short time ago. how do the efforts today, mark, to improve and expand mobility and transportation in major cities, how does that help ford sell vehicles? >> well, overall first off it expands our business. first off, you know, we're taking a point of view of the world that the world is moving from just an ownership mindset around transportation to a shared mindset. and so we have a wonderful business around how people come and buy and own our vehicles. this is an opportunity for us to expand our business to mobility services, and also to touch folks who may not ever own a car or ever have any exposure to ford. so this is about not going from an old business to a new business. it's just expanding our business and filling an unmet need, particularly for cities that want to solve some of their congestion and mobility issues. >> how does that services model work? how should investors think about that when you're investing in
1:13 pm
things like crowd source shuttles as well as bike sharing, things that may not necessarily have anything to do with the f-series pickup for instance? >> well, i think the way investors should look about is we have this core business which has turned record performance with us last year in terms of financial performance, the first half of this year all-time record performance. but when you look at these mobility services or the monetization of the use of our product, it is completely aligned with our -- what i call our why of our company which is making people's lives better and changing the way the world moves. when you look at these upside opportunities on some of these emerging opportunities, we think it's quite compelling. >> is this essentially admitting or conceding that perhaps the best days for vehicle sales may be behind the industry? >> well, overall when we look at growth around the world, our core business is still a growth business. when you look in places around
1:14 pm
the world, whether it's asia pacific or otherwise, this is still a business that's going to grow at a fairly good compounded growth rate for the next number of years. but at the same time as these these services come on, you could argue that it would decrease, for example, car usage or density in major urban areas. and that's why we're embracing the sharing and the services part of our business. because we think it will allow us to grow and compensate for any kind of detriment we see in the actual number of vehicles in downtown areas. >> i want to pivot now, mark, to what you're seeing in the business right now in terms of customers going out there buying new vehicles. do you see any speed bumps, excuse the pun, a rate hike, are those reasons for consumers to hit the pause button on buying a vehicle? >> well, i think consumers are they get impacted by a lot of things. and obviously during an election year and things of that nature
1:15 pm
you could argue that there's an impact on the demand for vehicles. but our point of view is that we've probably plateaued as an industry. the auto industry overindexed if you recall versus the general economy when we were coming out of the great recession, so we benefitted from that. what we've seen in the second quarter of this year, we've actually seen the retail industry down slightly. we've seen incentives up in the industry. still the industry -- retail industry is still at a fairly healthy level, but clearly we think that most of the growth is plateauing at this point. and we're prepared for that as a company. >> auto loans have been a huge driver to record sales levels that we've hit, mark, so i'm wondering another quarter point hike higher, is that going to make a difference in terms of consume consumers' ability to buy cars? do you think that will slow down the pace? >> well, it could impact it on
1:16 pm
the fringe, particularly folks that have extended length payments that are, you know, on the fringe of either buying a new car or used car. but we have to step back and take a deep breath because when the fed is looking at raising interest rates, they're looking at the economic activity. and if they're thinking of raising interest rates, that means the economy is doing fairly well. that's good for the economy. and that's good for our business. >> all right. i want to get to the recall, mark. $640 million charge because of that expanded recall due to the faulty door latch. is that contained to the third quarter? are you confident that that is an issue that is behind the company at this point? >> yes, we announced yesterday at the request of nhtsa we have expanded what was a regional recall. and we announced it was going to impact the third quarter to the tune of about $630 million, $640 million. and, yes, that will be booked in the third quarter. >> all right, mark. thank you very much.
1:17 pm
appreciate it. >> all right. thank you, melissa. still to come here on "power lunch," the sooner state oil boom, who are the big players? who's cashing in? we'll head back out live to oklahoma city next. and stocks hitting session lows as the selloff accelerates. as we head to break a look at the sectors now, all major s&p 500 sectors in the negative. financials holding up the best, but still negative. "power lunch" back in two minutes. what if a company that didn't make cars made plastics that make them lighter? the lubricants that improved fuel economy. even technology to make engines more efficient. what company does all this? exxonmobil, that's who. we're working on all these things to make cars better and use less fuel. helping you save money and reduce emissions. and you thought we just made the gas.
1:18 pm
energy lives here. when you cook with incredible thingredients...ato. you make incredible meals. fresh ingredients, step-by-step recipies, delivered to your door for less than $9 a meal. get $30 off your first delivery blueapron.com/cook.
1:19 pm
this is the new comfort food. and it starts with foster farms simply raised chicken. california grown with no antibiotics ever. let's get comfortable with our food again.
1:20 pm
take a check on the market selloff we have on our hands right now. we are just about at session lows across the board. the dow is down by 269 points, s&p down by 36, that's 1.7% to the downside. and nasdaq composite is down by 95 points, a loss of 1.8%. a lot of the sectors we saw really being bid higher in the past month or so, people are taking profits. semiconductors for one down about 3% so far on the session, utilities, telecom, dividend yielding sectors also sharply lower today. oil also lower in the face of stronger dollar. oklahoma quickly becoming america's hottest new energy hub. how's it going to be impacted? that's why brian is there today. brian, take it away. >> yeah, thanks, michelle. listen, we've talked about texas, we've taken you there a few times. we've talked about north dakota and taken you there a few times.
1:21 pm
we've talked about louisiana and taken you there a few times, but we probably may have ms.issed t hottest oil play and that is a region both to the north and south of where we live right now. oklahoma city, oklahoma, they're called the scoop and the stack. i'll explain that in a minute. this might be overall, overall the lowest cost production region in america, but that does not come without problems as well. i can tell you all about it, but this being television, why don't we show you. the permian basin, eagle ford shale, the bakken, the three most well-known oil producing regions in america, but lately two other areas with unusual names are beginning to get attention. the oklahoma regions known by the acronyms. scooper and stack. wow. the area's hot for a few reasons. one, it's a relatively new oil
1:22 pm
and gas play, so two, plant prices never spiralled out of control, three, oil people just got what they call good rock. a lot of oil and gas that is relatively easy and inexpensive to get to. the biggest players in the region include devon energy, continental, newfield, and after a few years of selling to raise money, there's some talk chesapeake energy may be ready to grow again in the area. this year investors who bought the big scoop stack stocks have outperformed those of stocks in other regions. but there is risk as the areas discovered prices have gone up making it harder to make money at $40 to $50 a barrel. and then there's the earthquake concern. the region slammed by its biggest ever earthquake less than a week ago. and some are suggesting this and other quakes are caused by oil and gas fracking. the state has just ordered more than 50 so-called disposal wells
1:23 pm
used for waste water from fracking shut down. and we've got a geologist coming up in a few minutes to talk more about that. but let's talk about the investing side of the scoop stack story. joined by kate richards, born and raised here in the sooner state. what did we screw up? did we get everything right in that package? >> you didn't get right prices are rising, we've seen cap x fall -- >> even to buy land? that's what i meant. if i was going to buy land, i would have to pay more. >> you can't buy anymore land. >> well, everything's sellable for a price. >> you can buy a company, but you can't buy land. there's not unleased land. if you want access to drill oil and gas wells, you have to go to the private companies. mostly it's the big five, and those are the ones you mentioned, continental, devon. >> i'll knock my own industry here for a second because they say when the media shows up, it's over. we're the peak, sort of that's the joke. are we the peak? >> i hope you're not.
1:24 pm
i don't think you are because these are the lowest cost break even plays in the country. these plays make 10% rates of return at $30 oil. so they make a lot of money at 60 -- >> so back up. 10% invested rate of return at $30 oil? >> and how long was crude at $30? very briefly. so if you look at crude and you see it's ricochetting between 30 and 60 but really stuck in a band between 40 and 50, the way we really believe investors should look is we need to make good rates of return at 30, that way we'll make very nice rates of return at 60. what you don't want to do is go into a play like the bakken or some of these higher marginal cost plays and need $60 oil to make sense. you need to make good money at 30 because then you'll make very good money, 20% rates of return in the 40 to 50 band and 40% to 50% rates of return in the 60 band. that's why we just focus on the scoop and the stack. >> what i've learned about the industry through you and others, you're a nonoperator, that's what they call that. you're not getting a rig or drilling into the ground.
1:25 pm
your firm energy invested over 4,500 wells. what i didn't realize until recently is chevron or whatever may own a well, but you have other players who own a piece of that. that's what you invested. how much can you make on an average cost well at $45 a barrel? >> you can make a two times return. and between 20% and 30% unlevered return. >> how is that possible? >> because your cap x is about $8 million to $10 million in these wells. if you look at cash flow over time, you have a huge amount of crude and gas coming out of these wells and very low operating costs. so one thing that's very important for everyone to understand about the scoop and the stack is it's low cost. it also doesn't produce much water. water is what is related to earthquakes. you're talking about that later on. but the scoop and the stack produce very little water. >> where's it been? maybe this is our fault, kate. we've talked about the bakken, eagle ford, delaware basin, mississippi line, whatever. why haven't we been talking about the scoop and stack? is it that new? >> it is new.
1:26 pm
there are over 1,300 wells drilled. the discovery was over the past three years. i think oil and gas and investors are certainly aware of the scoop and stack. you cannot read a morning equity note and not read about the scoop and stack, that's been true for a year. but it hasn't hit the big national media. i think one of the reasons for that is it's only five big public companies really involved. >> well, we're here now. kate richard of warwick energy, thank you very much. we've been reading our equity notes. tyler, you've been talking about the scoop and stack for years. we finally made it out here. you can make a lot of money at $40 a barrel just about 30, 35 miles north and west of here. >> brian, thank you very much. i'm educated now on the skpoop and the stack. it is a sea of red out there, and all other sort of market related cliches with the dow down about 270 points. we haven't had a day like this since the brexit vote. we have managed however to find some green arrows, metlife, prudential, trip advisor, people who want to get out of here, and
1:27 pm
kroger. they are all in the green. we'll be back with more market coverage right after this. ow thm seamlessly syncs across all your devices. the market's hot. sync your platform on any device with thinkorswim. only at td ameritrade. it's scary when the lights go out. people get anxious and my office gets flooded with calls. so many things can go wrong. it's my worst nightmare. every second that power is out, my city's at risk. siemens digital grid manages and reroutes power, so service can be restored within seconds. priority number one is keeping those lights on. it takes ingenuity to defeat the monsters that live in the dark. remember here at ally, nothing stops us from doing right by our customers. who's with me? i'm in. i'm in. i'm in. i'm in. ♪ ♪
1:28 pm
one, two, - wait, wait. wait - where's tina? doing the hand thing? yep! we are all in for our customers. ally. do it right.
1:29 pm
there's a lot of places you never want to see "$7.95." [ beep ] but you'll be glad to see it here. fidelity -- where smarter investors will always be. if only the signs were as obvious when you trade. fidelity's active trader pro can help you find smarter entry and exit points and can help protect your potential profits. fidelity -- where smarter investors will always be. hi everyone. i'm sue herera and here's what's happening at this hour. amateur video appears to show french police detaining a veiled woman believed to be 19-year-old ines madoni arrested for
1:30 pm
plotting an attack in paris. shot in the leg after stabbing a police officer with a knife. the french prosecutor called it a failed terrorist attack plotted by three women who were guided by syria. a volkswagen engineer has pled guilty to one count of conspiracy in the company's emissions cheating scandal. james robert liang has agreed to cooperate in the widening criminal investigation. that is him leaving court after entering his plea. the faa warning airline passengers not to turn on, charge or store the samsung gallery note 7 phone during flight. this follows numerous reports of the device's lithium batteries catching fire. and students at virginia tech have a new way to get their burrito fix. chipotle and google parent alphabet will begin delivering burritos by drone starting next week for a limited time. the program is one of the first of its kind to be approved by the faa. it's going to be very popular at
1:31 pm
finals exams time, i think. that's the news update this hour. more "halftime report" after a quick break. and actually, melissa, send it back to you. i'll take it, sue, thanks so much. time for the good, the bad and the ugly in today's trade. first start with the good on a negative day across the board for the markets. wynn resorts leading the s&p 500, a 2% gain so far. on to the bad home builder pulte group getting hit hard down more than 3%. much more on the home builders straight ahead. home builders by the way looking at a 4% decline on the week. and it is an ugly day for diamond offshore, the stock the worst performer in the s&p 500 down nearly 10%, michelle. got it, thanks, melissa. big bank downgrade today, the wells fargo fund leading one top analyst to slap a sell rating on the stock. that analyst live on "power lunch" next.
1:32 pm
mary buys a little lamb. one of millions of orders on this company's servers. accessible by thousands of suppliers and employees globally. but with cyber threats on the rise, mary's data could be under attack. with the help of at&t, and security that senses and mitigates cyber threats, their critical data is safer than ever. giving them the agility to be open & secure. because no one knows & like at&t. thosthey are.sses? do i look smarter? yeah, a little. you're making money now, are you investing? well, i've been doing some research. let me introduce you to our broker. how much does he charge? i don't know. okay. uh, do you get your fees back if you're not happy? (dad laughs) wow, you're laughing. that's not the way the world works. well, the world's changing. are you asking enough questions about the way your wealth is managed? wealth management,
1:33 pm
at charles schwab.
1:34 pm
stocks close to session lows right now. take a look where we stand the dow down by 263 points right now, good for a loss of 1.4%. nasdaq down by 1.8%, 94 points to the downside, s&p 500 off by 1.6% or 36 points. and take a look at volatility as well. that as you can imagine is soaring, but of course off of a
1:35 pm
very low base here. we see volatility, the vix higher by 26% today. let's bring in steven gilfoil, steven, great to have you with us. >> thank you. >> if there's a notion that the fed has to raise interest rates and may raise more than once even in the next year or six months, whatever you want to call it, because the economy is doing okay, why is everything from the dividend yielders to the cyclicals, why are they all selling off today? >> well, when things happen quickly, they happen in a way that hurts. and traders had largely discounted interest rate hike very soon because let's face it the macro is not all that strong. almost all of our august economic macro data points have come in rather weak, rather dis appoi appointing, even in contraction. the fact a lot have chosen to ignore these recent macro economic events and remain hawkish has placed quite notice on traders to price in these moves in currencies, in equities, in treasuries. the big thing now is the 1:00
1:36 pm
speech on monday. that was hastily thrown together. and a lot of traders are pointing to that as a spot where high profile dove may turn hawkish. that is your next event. >> so basically you're saying every trader -- well, not every -- many, many traders of every asset class, whether it be equities, currencies, bonds, everybody got caught offsides? >> well, take a look at everything. take a look at the dollar. take a look at gold. take a look at the oil pitch. take a look at equities. take a look at treasuries. yeah, every asset class was caught off guard. we're all having to price -- we basically priced in putting off the rate hike for another three months or so thinking it wouldn't happen in front of the election because the macro has been poor. now we have to say wait a second. i mean, 2145 on the s&p is not a bad spot, if you're two or three months back. but we're not two or three months back. so now we have to take back what we had priced in. so we're either pricing in a hike in september or we're unpricing in putting off the hike. you choose the wordage. >> all right. stephen, got to leave it there. thank you, stephen guilfoyle.
1:37 pm
wells fargo down 1% after the company being forced to pay $880 million fine for wrongfully opening 2 million customer accounts. joining us is dick bove just downgraded wells fargo to a sell. >> thank you, michelle. >> dick, when you look at this case, say i'm a shareholder of wells fargo the last couple years, i probably paid a premium relative to its peers in the sector because wells fargo appeared to be really good at extracting profitability from each customer because they managed to cross sell really well, open more accounts for their customers. i see this fine today, the fake accounts they created seemingly without the customer knowing. and i wonder to myself what about the future business model? am i right to be worried about them? >> yeah, i think you're exactly correct in everything you said. i think basically the business model of wells fargo, not for just the past ten years but
1:38 pm
almost the past two decades has been based on this theory that we can grow our earnings basically by selling more products to our existing customers. and we have the ability to bring in new customers. and what we've seen today with this fine is that maybe that theory was not based upon reality. maybe it was based upon an overaggressive sales force. and possibly we've created accounts that shouldn't have been on the books. >> what's so interesting about your note is you were a customer of wakovia, you said, wells fargo buys it. and you actually heard stories from employees about fake accounts, but you didn't believe them. >> well, that's right. i mean, because it sounded so farfetched that, you know, the pressure coming from the top would be so extreme that people sitting in different branches around the country would be opening up false accounts to alleviate that pressure. therefore i didn't believe the story. in fact it was true.
1:39 pm
apparently if you'd walked into a wells fargo branch and wanted to open up say a checking account, the office you may have spoke to may have opened a credit card account, debit card account, who knows what other account for you and he never told you that he was doing it. so the next thing that happens is you start to see fees building up that presumably you had to pay on accounts that you knew didn't exist. the question, you know, beyond simply the failure to serve the customer properly, the question beyond that is how much of this seeped into the revenues of wells fargo? when wells fargo made all of these presentations to analysts about the number of accounts it was opening, about the cross selling ratio that it was giving, if all of those numbers were incorrect, if there was revenue seeping into these numbers, then there's real questions about the numbers of wells fargo itself. >> yeah, you got a problem there. i mean, dick, i know you remember what they used to say jokingly about wakovia, that it really was walk all over ya is
1:40 pm
what they called it. i sense your outrage here, and i share it. it seems to me that one of the things, one of the reasons why wells fargo has been basically a good performing stock for much of the past half decade the phrase has always been best of breed. this calls that into question, doesn't it? >> it does. and the other thing that people may start to look at is, you know, if you're a bank analyst, look at preprovision, pretax earnings as the true earnings of a bank. you don't look at earnings per share. wells fargo has not increased for five years. in other words this company is selling at a premium to its peers even though it is not increasing its real earnings and some of its peers like j.p. morgan are. so the net effect is this premium multiple doesn't deserve to be on this stock. >> this is different, it seems to me. it may not be of the same scale
1:41 pm
as some of the securities trading issues that were associated with the 2008, 2009 financial crisis. but this is important because unlike those which where traders were getting ripped off and getting securities that were packaged fraudulently, here consumers are under attack. do you fix this only by sending some people to jail? >> no, i don't think so. >> why not? >> well, because, you know, you can put the people in jail, but i now have some trepidation walking into the branch wondering whether i'm going to be served the way i want to be serve served. i think wells fargo to right this thing has to do something dramatic for consumers. it has to show in some fashion that it believes in its customers, it wants its customers and it's going to help its customers by giving them something to offset what they've done here over the last who
1:42 pm
kno knows what number of years. >> dick, i want to understand more about the downgrade today based on what happened. because you said wells fargo is trading at a premium to banks for five years. so why sit at your rating for five years when it was already trading at a premium? and was that cross selling metric, if you back all of that out, what is the worst case scenario here? >> well, we didn't have a buy recommendation on wells fargo. you know, we moved it from a hold to a sell. >> so you had a hold rating, but you didn't say sell it even though it was trading at a premium to its peers for five years. >> yeah, well, that was merited. the stock didn't go down either. so the net effect is what we're saying now is that there's an opportunity for investors to take a closer look at the structure of the company's earnings and that now maybe the company's premium will come down. because remember over the last five years this was not the worst performing bank stock out there. it certainly did not perform well over the last, you know, 12, 18 months. but neither did any other bank stock unfortunately.
1:43 pm
>> well, normally we'd have you onto talk about rising interest rates that i think would be helping out the whole overall sector at some point. but interesting one, dick, thanks so much for joining us. >> for another time. >> yeah, we'll have you back for another time. >> the s&p 500 hitting a fresh session low. let's go to dom chu now for a market flash. >> that's right, tyler. dow down about 280 points, but check out what's happening with the s&p 500 health care sector. it's not getting hit quite as hard as say the broader market today, but it's down more than 1% so far. the losses now do mean that the sector's taken its first peek at negative year-to-date performance since the aftermath of the brexit vote. shares of thermofisher, biogen, quest die nostices. all right. roiling the global shipping supply chain, we will have the details about han gin. and as we head out as dom
1:44 pm
highlighted stocks hitting new lows moments ago. look at the losers in the dow right now, verizon off 3%, boeing the same, caterpillar and coke also with greater than 2% declines. power back in two.
1:45 pm
1:46 pm
welcome back to "power lunch." the s&p's down 40 points, the dow off by 293. these are the lows of the day so far, again, hovering near their worst levels. home building stocks sticking out as some of the worst performers on the day. if you take a look at the spider home builders etf, the ticker xhb, every single member of the fund is in the red. it's on pace for its worst day since september 28th of last year, this as rising interest rates are seen as putting a possible damper on some housing related activity among other factors of course. shares of pulte group, drhorton, toll brothers. tyler, back to you. morgan brennan is live in
1:47 pm
beautiful new jersey across from the port of newark with the latest. hey, morgan. >> reporter: hey, tyler, that's right. hanjin shipping saying it has received authority to spend money to begin docking at u.s. ports and to begin unloading those four hanjin vessels, finally, that have been stranded off the coast here in the u.s. so hanjin's legal team saying that at least $10 million was authorized by a korean court to begin servicing those four ships. hanjin also identifying 14 u.s. bound ships in total though it's unclear what will happen with those other ships. now, all of this according to reuters, it's based on comments and court filings that are being made to a federal judge here in new jersey. that court hearing started at 10:00 a.m. this morning. also worth noting hanjin joining some of its customers including samsung and hp in urging for a court order that would prevent the seizure of its ships as they come into port and would also enable some of these customers like samsung to be able to get
1:48 pm
that cargo off of those ships. so as you mention we've got $14 billion worth of cargo that is stranded at sea on nearly 80 hanshihan hanjin ships. the world's number seven shipping container line first filed for bankruptcy really surprising the entire global supply chain. back to you. >> morgan, besides the electronic products you mentioned, do we know what kind of stuff is on all these ships? >> reporter: yeah, i mean, so first of all, container shipping accounts for 98% of all of the world's manufactured goods, in terms of how they're moving around the continent. so just about anything you would imagine is going to be on these ships including clothes, toys for the holiday season, appliances, refrigerators, dish washers, the like. we have computers, televisions, frozen meat. we even have postal -- basically
1:49 pm
korean mail that is coming into the u.s. and that's just the side of the ships that are stranded at sea and all the stuff that's being imported. you've also got a huge mess here on the ground at some of these ports because you have cargo that got offloaded and then the bankruptcy happened. it's just sitting at ports like this. and you have exported goods that are also trying to make their way onto new ships. >> what do you know, if anything, about the conditions on these ships, many of which seem to be running low on food and water? >> reporter: yeah, that's certainly been a big concern particularly over the last couple days, just to give you a little color here. there's one ship, the hanjin miami that was due to call at this port at the new york/new jersey port, actually at the terminal right behind me, that was due to call earlier this week. it left korea more than a month ago on august 9th, it crossed through the panama canal, it's been circling in the atlantic ocean. and basically what we're hearing is a lot of these ships that can't make their way into ports are now starting to shut off the
1:50 pm
air-conditioning to save on fuel. you've also got some reports that some of these crew are subsisting on peanut butter sandwiches right now. there's been a lot of concern about that. >> no jelly? >> can't afford the jelly. >> can't refrigerate the jelly. >> i see, morgan, thank you so much. >> exactly. >> stocks near session lows right now, dow down 296. nasdaq down 2%. we're going to be all over the selloff when "power lunch" returns. everyone said it's so hard to be a musician, but i can't imagine doing anything else. now that the train makes it easier to get here, the neighborhood is really changing. i'm always hopping on the train, running all over portland. i have to go wherever the work is. trains with innovative siemens technology help keep cities moving, so neighborhoods and businesses can prosper. i can book 3 or 4 gigs on a good weekend. i'm booked solid for weeks. it takes ingenuity to make it in the big city. remember here at ally, nothing stops us from doing right by our customers.
1:51 pm
who's with me? i'm in. i'm in. i'm in. i'm in. ♪ ♪ one, two, - wait, wait. wait - where's tina? doing the hand thing? yep! we are all in for our customers. ally. do it right. there's a lot of places you never want to see "$7.95." [ beep ] but you'll be glad to see it here. fidelity -- where smarter investors will always be. if only the signs were as obvious when you trade. fidelity's active trader pro can help you find smarter entry and exit points and can help protect your potential profits. fidelity -- where smarter investors will always be.
1:52 pm
hey how's it going, hotcakes? hotcakes. this place has hotcakes. so why aren't they selling like hotcakes? with comcast business internet and wifi pro, they could be. just add a customized message to your wifi pro splash page and you'll reach your customers where their eyes are already - on their devices.
1:53 pm
order up. it's more than just wifi, it can help grow your business. you don't see that every day. introducing wifi pro, wifi that helps grow your business. comcast business. built for business. we've taken another leg lower here in the markets. the dow is down by almost 300 points, 293 right now. the nasdaq is down by more than 2%, a loss of 106 points. we are seeing tremendous selling pressure within the nasdaq by the semiconductors, those are down 3.5%. all of this in part because of the rise we're seeing in yields. take a look at the 10-year yield right now. if we're not at session highs, we are close to them. 1.68% was the last print that i saw. remember, this is part of a two-day selloff we've seen in the bond market. started yesterday when we saw yields go to 1.62. now we're up to 1.68, really
1:54 pm
unprecedented moves in just a short amount of time here. let's get back to brian in oklahoma city. bri. >> melissa, thank you. a lot of optimism around oil and gas drilling in oklahoma as we have shown you financially it works out. there's one big problem, actually hundreds of potential problems, and that is earthquakes. last week the biggest earthquake in oklahoma's history hit, 5.8. but there have been hundreds of earthquakes already this year. in fact, about ten years ago there were two to five earthquakes per year in oklahoma. last year there were more than 900. why is this happening? what is the relationship to oil? let's ask somebody who knows? todd hallihan is a geologist at oklahoma state university. thank you for joining us. >> thanks for khaving me. >> tie it together. the faults under oklahoma are very old, but inactive. so what is the connection between oil and gas fracking and waste water disposal and the earthquakes? >> so the faults are inactive, but they're critically stressed.
1:55 pm
so they would like to move, but they're stuck. it's not easy to move rock. so what happens is if you change the pressure of the fluids on those faults, you can get them to activate. and it's similar to turning on the air under a hockey table and getting that puck to slide around a lot easier. >> so effectively is the waste water if i'm hearing you right sort of lubricating the faults for a lack of better term? >> it's one way to think about it. you've got to watch how much water you're putting in and whether it will get down into those zones. >> why is it causing the quakes though? is it just forcing the fault lines to move? >> the faults already want to move. all that energy's already there. it's just triggering it by changing that pressure on that fault and getting it to move a little bit. >> in your mind, how direct is the correlation? >> the correlation on the trick is on a correlation statistically it's pretty well correlated. and the science of it we've known about this phenomenon since the '60s. and we've actually turned on and off a well back in the '60s and '70s trying to do the experiment and we've made our own
1:56 pm
earthquakes. >> but as i understand it there are something like 12,000 waste water disposal wells. i mean, ma and pa could if they've got some land could just say, hey, we're a waste water disposal well now, come dump your water on our property. how do you control this? how about this? is it bad enough that the state is going to shut down the oil and gas industry in oklahoma? >> i don't think the state wants to shut it down. and the industry doesn't want to be shut down. and the people in the state a lot work for the industry. they don't necessarily want it to be shut down. >> but you can't have earthquakes all the time. >> you can't have earthquakes all the time. that comes to knowing enough to be able to manage it. we went from absolutely no knowledge because we've been injecting since the '30s. so we've been going many, many years without earthquakes. now we're getting to where we're better managing the reservations but not the depth. >> we have to jump to tyler, but one final question or i would be remiss, what is your professional recommendation to the state and industry? >> we need federal investment in the science so we can do a
1:57 pm
better job of managing on a priority basis versus just as a reaction to an earthquake occurring. >> all right. todd halihan, it was a pleasure, real serious issue, thank you for joining us. >> thanks for having me. we're all over this market selloff, it's a big one likes we haven't seen since brexit day. nasdaq worst of the major indexes in percentage terms off a smidge more than 2%. "power lunch" will be back to take it forward from here. this car is traveling over 200 miles per hour.
1:58 pm
to win, every millisecond matters. both on the track and thousands of miles away. with the help of at&t, red bull racing can share critical information about every inch of the car from virtually anywhere. brakes are getting warm. confirmed, daniel you need to cool your brakes. understood, brake bias back 2 clicks. giving them the agility to have speed & precision. because no one knows & like at&t.
1:59 pm
enepeople want power.hallenge. and power plants account for more than a third of energy-related carbon emissions. the challenge is to capture the emissions before they're released into the atmosphere. exxonmobil is a leader in carbon capture. our team is working to make this technology better, more affordable so it can reduce emissions around the world. that's what we're working on right now. ♪ energy lives here.
2:00 pm
hi everybody. tyler mathisen here. welcome back to "power lunch." let's get a check on this market selloff, the biggest we've seen in several months time. two hours until the closing bell. stocks breaking out of their summer slumber with a sharp move to the downside. the dow down about 290 points, as you see there at 18,187. all 30 dow components are lower, by the way. the nasdaq down roughly 2% at 5155, the s&p 500 at 2141. check out wall street's so-called fear index. you may know it as the vix. it too breaking out about 30% after a summer of just sort of
2:01 pm
sleeping in the sun. all ten s&p 500 sectors are lower. telecom, utilities, materials, energy leading those declines and not deserves applause. treasury yields surging in the selloff. the benchmark 10-year now after spending better part of the last couple months in the 150s, now poking up towards 1.70. at 1.675. that is a two-month high. there are some winners in the selloff, by the way. seagate technology one of them, tripadvisor and checkpoint software in the green at this hour. melissa. i'm melissa lee and headlines at this hour, teva pharmaceutical hopes to launch a generic version of mylan's epip epipen. the faa warning airline passengers not to use samsung galaxy note 7 phone during flights. this follows numerous reports the device's lithium batteries catching fire. let's get back to brian sullivan. he's doing special coverage of the energy sector in oklahoma
2:02 pm
city today. brian. >> michelle, thank you very much. you talked about oil down a couple percent today. up a couple percent yesterday, on pace for a net gain this week. it has been a roller coaster ride. one of the reasons that we're here is how do you manage through this if you run an oil and gas company? and what if oil stays in the $40 a bare range for the next six months or six years? well, coming up in a bit we're going to speak with one of the major players in the oklahoma oil scene, the ceo of devon energy will be our guest exclusively. that's going to be a big one. plus, normally you go to oil and gas area we have the boots and hats on some rig. i'm in this beautiful air-conditioned building and it's spectacular. and you're thinking why are we here, right? it's not because we're lazy and it's 100 degrees outside though there's probably some truth to that as well. it's that ge has built this specifically for oil and gas research. i didn't realize how big, guys, ge had gotten in oil and gas. i knew they were moving in that direction. they are bigger than you could ever imagine. coming up in a few minutes we're going to tell you why, show you
2:03 pm
this lab and what ge is doing to try to bring down the cost of everybody's drilling so you can make money at, you know, $45 a barrel. we tie it all together, michelle. that's what we do in a neat little package. >> always do, brian. thank you. looking forward to that coming up in the rest of the hour. interest rates rise iing. >> that's right, markets, may be near lows of the day but that doesn't mean every stock is feeling the pain. tyler pointed at a few early on. but check out what's happening with some of the big publicly traded insurance companies. you've got shares of metlife, prudential, lincoln national, hartford, all in positive territory at least for now. rising interest rates seen as helping insurers. remember, they fund future liabilities and obligations by buying assets that return some kind of money as interest rates rise, michelle, those returns are helped out somewhat. back to you guys. thank you, dom. as we said dom talking treasury yields on the rise now two days of rising rates after some hawkish comments made this morning by boston fed president eric rosengren.
2:04 pm
let's bring in cnbc contributor peter boockvar, chief market analyst with the lindsey group. good to have you here. >> thanks. >> rosengren said rates probably need to go up, not only do they need to go up, but if we don't make them go up it could actually hurt the economy. i thought that was pretty startling to come from him. >> yeah, at this point in the cycle they believe they've maybe reached the point where they've blown some bubbles, particularly real estate. and maybe it's time to tamp them down. but the irony of today is that the two-year note yield is just where it was last friday. what's going on of significance is the rise in longer term interest rates. >> the 10-year and 30-year. >> this trend started in japan about a month ago. when the boj started buying less longer term jgbs because they wanted a longer yield curve. now we realize the central bank running to logistical in what it can buy. >> you highlighted move in japanese rates back then. we brought it up a lot on the air on cnbc. was that the canary in the coal mine that worldwide interest
2:05 pm
rates had finally bottomed and we were going to start to see the turn. you actually said that at the time. you think interest rates have bottomed. >> i think that is becoming more clear. not because of an inflation growth argument, but because we're seeing central banks reaching limits. now, they may want to go past those limits, but logistically they're reaching major limits. we may have the bank of japan in a couple weeks say we're buying less long-term jgbs, we want the yield curve to steepen. draghi is basically caught with only so many more bonds he can buy. so that is the reason why you can maybe call the bottom in yields. that's the most significant thing. not necessarily what rosengren said today. >> i can see where reaching limits about what they can buy in the securities markets, but what is the limit that they're reaching with respect in the united states to interest rates? staying so low? >> oh, you mean in terms of their manipulation of interest rates? >> yeah, well, what is the limit? >> they're not going to go negative, i believe. >> okay. >> so we've reached essentially
2:06 pm
almost the limit. and, yeah, they can do qe-4 which i have no doubt at some point they will to fight the market and then try to lower interest rates. i'm not taking that off the table. but the limits are one, logistically, but number two, the influence. the japanese lost control of the yen. they've been buying stocks and the nikkei can't get out of its own way. buying jgbs hand over fist and yields are rising. >> and we've seen that with the swiss national bank. they can buy stocks. the swiss stock market hasn't done anything. same thing with japan. so it's just not having any effect. >> right. >> when you hear rosengren's comments today, do you think glass half full or half empty? do you hear more the economy is doing really well -- it could overheat if we don't take action, or do you hear right now we're at a critical point where the fed has to thread a needle to get out of the cycle we've been in? >> well, what i see is a weaker economy. we've seen that in the data just over the past week. what i hear is somewhat delusion about how great the economy is.
2:07 pm
but a fed that feels like they're trapped and they need to find a window to get out of this trap. >> bottom line it feels like the markets are telling us today it wasn't ready for the fed to hike rates. >> well, it wasn't ready for the fed to hike rates, but it wasn't ready for the sharp rise in longer term interest rates. the german 10-year is just back to zero, but rather short moves in a short period of time. >> all right. peter boockvar, thank you so much. >> thank you. >> we'll see. the justice department has its first indictment today in its investigation into volkswagen's emissions defeat device. veteran woex volkswagen engineer james liang, this is the first criminal charge in the justice department's investigation into the world's largest automaker and its shenanigans over emissions. liang faces maximum penalty of five years in prison. his attorney made this brief statement outside the courthouse.
2:08 pm
>> mr. liang came to detroit today to accept responsibility for his actions. he's one of many people at volkswagen who got caught up in this emissions scandal. and he's very remorseful for what occurred. >> how cooperative is he going to be with the government? >> that's all we have to say at this time. thank you very much. >> volkswagen issued this statement following the news. volkswagen is continuing to cooperate with the u.s. department of justice. we cannot comment on this indictment. it has been just about a year since this whole scandal started and the stock has been hammered. it is down 22% or thereabouts in that time. and general motors announcing it is recalling 4.3 million vehicles to fix a problem with the airbag software that has been linked to one death and three injuries. the cars in the recall are buick, chevy, gmc and cadillacs dating back to 2014 model year. gmc stock down by more than 3% along with broader markets. to meg tirrell with a news alert on mylan. >> melissa, remember senator
2:09 pm
chuck grassley was among lawmakers who asked mylan, maker of epipen, for information about the price increases that went into that product. he set a deadline of september 6th and says now that they've received a seven-page letter from mylan that result he says is an incomplete response. he says, quote, i appreciate the information provided, but it's an incomplete response and wouldn't satisfy my constituents upset about the epipen price increases. it doesn't provide the full picture i requested and doesn't answer all of my questions. he says it doesn't go far enough to explain the price increases also doesn't go far enough to explain whether patients are helped enough by patient assistance programs. he says he will continue to push for answers. he also linked to mylan's seven-page response and start out by saying mylan is more than any one product and price decreases they've taken across their portfolio have led to annual price decrease of 1% over the last five years, melissa. mylan down about 1.8%. >> meantime, meg, we got news that teva plans to introduce its generic version of epipen by late 2017. is that later than expected? and is that actually good for mylan, which is now going to
2:10 pm
sell a generic version of the epipen for $300? >> well, so there was some uncertainty about whether and when teva would be able to return for application for the epipen generic. i think folks are curious to know why it got rejected in the first place, so there will be some curiosity about whether they can sort of figure that out and have the real identical product they need to have to get the go ahead. as you have pointed out before, there have been questions about mylan's own generic and whether that was kind of a smart move on their part to corner the generic market before the branded market before competitors. >> meg tirrell. big market selloff on wall street right now. take a look at the s&p 500. we were down about 2% just moments ago right now still down 2%, 44 points is a loss there. nasdaq down by 2.2%. 5145. we are very close to session lows. energy really leading the way lower. much more on energy live from oklahoma when "power lunch" returns.
2:11 pm
2:12 pm
2:13 pm
welcome back to "power lunch." dow now down 325 points, near the lows of the day. if you're looking for a positivish part of the market, check out what's happening with the regional banks. overall interest rates are at the theme of the day so far, and the possibility of those rising rates is seen as helping the profitability at regional banks. it's one factor behind the positive days for stocks like m & t bank, bb&t and citizens financial hovering around the
2:14 pm
flat lines. now to brian sullivan in oklahoma. over to you. yeah, dom, thank you very much. listen, as the stock market goes down, as the price of oil goes down, nobody's going to stop drilling. we need oil and gas. so what do you got to do? you have to cut costs. you have to be able to make money at $40 or $45 or $50 a barrel. how do you do that? well, you get better with the technology. and that's one of the reasons we are here. you are getting an exclusive first look. we are inside a ge innovation lab here in oklahoma city. it's in fact so new it's not even technically open yet. october 5th is the grand opening, not to the public but really just to ge and their employees. look at this facility. and the whole thing has been built to help oil and gas companies and energy companies in general become more cost efficient, more technologically savvy. let's bring in the man responsible for it, he's brian, president of north american for ge oil and gas, brian, thank you very much for joining, ining u this is your house. >> thanks, brian. >> tell us how this facility is
2:15 pm
going to help people like devon, who we have coming up later in the show, make money at $45 a barrel? >> so thanks for being here. we have -- this facility is 125,000 square feet. so we've been working on it for the past two years to get it ready. we have two wells here that are completely enclosed and capped. and they are capable of simulating using all the utilities around us to simulate real world conditions that our customers are facing. so imagine you have customers that want lower costs, want more productivity, want more efficiency. >> i would say, brian, they don't want lower costs. they have to have it. >> they have to have it. they come here, we have a whole floor dedicated to customer collaboration. they come here, they work with our teams. we have two-thirds of our people here have advanced degrees, ph.d.s or masters. and we work with them and their specialists to try to find the solutions that are going to be able to get them there. so if you take, for example, we create the design that fits their problem, we can 3d print it here, bring it down to this lab, run simulations, real conditions of what they're going through and then take it out to
2:16 pm
the field. >> and how much have they come to you? when the price of oil began to collapse a couple of years ago, what were your customers saying to you? what do they need? >> well, at the beginning this is normally how we operate, so this is just one of our global research centers that are global. and it's part of a network that we tap into other ge businesses. so we pull technologies from aviation, we've pulled technologies from power. and we share technology, we share material science technologies that we learn in the oil and gas space over that's applied in aviation. and so this type of collaboration is happening all the time. now that the oil price is where it is, it's even more relevant for customers to come and partner with us. >> i'm going to profess my ignorance, brian. because i knew ge had been transforming and i knew you guys had been getting more into oil and gas. i did not realize how much you are already in oil and gas. $109 billion expected in revenue this year. approximately $16 billion to $17 billion of that -- it's a major part of ge's business. >> absolutely. >> how big can that division get
2:17 pm
for ge? >> so, brian, we are the third or fourth, depending on the year we're the third or fourth largest business inside of ge, our oil and gas business is. this is an important overall part of the ge story. customers expect us we're pulling in electrical equipment and other equipment from the other ge businesses and being able to bring solutions to them. in addition to that, when you look at our overall technology play, being a part of the digital platform and the predicts platform we have, this is an important part of that because we're able to put that into our products and co-create with customers an actual platform and industrial operating system that we can then go out and bring them productivity by applying that on their field. >> brian cothran, very cool. thanks for having us in your house by the way. >> appreciate it. love to have you here. >> one of their customers is devon energy and the ceo dave hager will join us exclusively. we'll talk about cost kucuts. i know everybody likes granite
2:18 pm
countertops and outdoor showers if you're in a warm climate, i'm going to make a bold prediction that an operating oil well will be the next must-have accessory in all wealthy american family homes, by the next five years. they have one, why can't we? >> it's good looking. it's really good looking. >> stainless steel, goes with the fridge. >> put a glass top on it. >> i was going to say put a glass top on it and serve drinks. >> coffee table. >> think of the cocktails you could imagine, you could just invent mpkts let's stick with energy, oil and gas enp stocks giting hit hard now. let's bring in mike kelly, senior analyst at seaport global securities. mike, great to have you with us. this really shows -- today's move really shows how the sentiment is and whenever something gets thrown out there from the fed about rising rates, people flee energy stocks, in particular stocks that have done well because a lot of these sectors have had some supercharge returns year-to-date, why not take profits now? why not be cautious, maybe miss
2:19 pm
a couple of points to the upside because of the market sentiment that is in control right now? >> yeah. hey, melissa. great to talk with you. the volatility has been, you know, it's been intense. the energy side of things here for really the last two years. we saw -- we had a big day yesterday. had a surprise in the inventory side. oil price skyrocketed, stocks all went up. we're seeing the opposite now, dollar higher, that puts pressure on oil prices. and i think, you know, listen, let's take it out like a year from now. and we still think that you're going to be in an undersupplied market. we're still going to be having oil supply fall here in the u.s. and we're going to be at a balance to undersupplied market. if that's the case, oil is not in the 40s, it's over 50 in our eyes. so taking profits right now is a little bit premature. >> all right. so let's say a continental resources, right, which is an operator in the stack what
2:20 pm
brian's been talking about all day up 117% year-to-date, up 11% for one month. and you're saying, you know, what hold firm 3.5% today to the downside just swallow it, keep going. >> just swallow it. that's a play right there, melissa, that if they take well costs down by another $1.5 million per well, which we fully expect them to do once in development mode, that play -- brian's on the forefront here. that's an early play and it's going to be very, very good. if they do that, you're going to be talking about ultimately oil gets to $55, projected rates of return the best in the country potentially up to 200% irrs on our numbers. >> today major pullbacks across your coverage universe, mike. so what is top on your list, the one stock if you had to buy today what would that be? >> newfield. basically brian's standing on top of their acreage right now out in the stack. this is the best new emerging play right there.
2:21 pm
the valuation's great on this. they've got the most exposure to that play. they're selling off the noncore parts of its business. focusing on the stack. this thing's worked and going to continue to work. >> mike, great to see you. thank you. >> thank you. >> so today's the day market watchers have been waiting for for more than two months, a move of more than 1% in the major averages. guess what, today we're getting a 2% move, and it's negative. does that mean more selling is coming? we're going to break it down when "power lunch" returns. hey gary, what are you doing? oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim.
2:22 pm
only at td ameritrade.
2:23 pm
2:24 pm
welcome back to "power lunch." check out what's happening with the markets overall. the dow is down about 315, 320 points at this point. the s&p down by about 43 as well. the nasdaq off by 110 points as well. we're talking about near session lows, the fresh ones haven't been hit just yet. but we will keep an eye on that. as for where there's still green on the screens, look at the discount end of the retailing spectrum, look at dollar general, also dollar tree holding at least for now in positive territory although dollar tree just now shifting marginally negative. mid scale retailers, kohl's also outperforming as is competitor
2:25 pm
jc penney, certainly retailers ones to watch, melissa, back to you. thank you very much, dom. stocks off worst session in two months, discuss what's ahead with the trading nation team. so, craig, what do you see in terms of what this might be an indicator of going forward? >> well, at this point this looks like noise to us because in our world 0% to 5% is just noise, 5% to 10% is a pullback, 10% to 20% is a correction, and more than 20% is a bear market. right now this looks like a back to school sale from our perspective. when i look at the charts we've been in a consolidation range, finally broke out of that a few months ago. we got good support that's going to come in place, we're kind of cutting through that in the 50-day moving averages today. but good support about 2100 -- sorry, 2120 to 2100, excuse me, i see that being a very good area of support here for the market. we continue to think the market is going to work its way higher. very optimistic whether 2350
2:26 pm
year end objective. 9% higher from where we are now. i know a lot of fund managers are going to be looking to put money back to work, this will give them the opportunity and the reason to do that. >> zack, i get the numerical case that craig is putting forth, the technical case. but when you couple that with what rosengren said, do you feel there might be something different afoot here in this selloff? >> well, i mean, there is also the factor we've talked about at different points but then stopped talking about except when it's happening of the selling momentum and when certain price levels broke at a certain velocity. you do get a lot of programmatic training, which is why i think you have sort of a post 1:00 sharp selloff the way you do today. i don't think everybody returned from lunch and pushed sell. there's a lot of programmatic activity going on here. not saying as a nefarious thing, just indicating there's a degree of that going on as there has been for markets the past years. the nervousness about does the fed move 25 basis points in a
2:27 pm
week or two versus in two months speaks more to this ongoing kind of uncertain delicate market psychology than it does to any substantial fundamental shift, right? because interest rates going to 50 basis points in september versus december should not in and of itself occasion some sort of market turmoil unless you believe all this is funny money created by easy money policy. there are plenty of those voices in the market. i'm not one of them. >> thank you, guys, got to leave it there. more market insights at tradingnation.cnbc.com. we will get the closing trades from the nymex. that's next. don't go anywhere. we're all over this market selloff as we head into the closing bell. stay tuned. and now your trading nation stats of the day, and a word from our sponsor. >> when it comes to investing, there are really two popular methodologies, fundamental anl cyst which focuses on things like revenues, earnings and cash flows and technical analysis, which focuses on chart patterns,
2:28 pm
price movement and momentum. most successful investors employ some combination of both methodologies when making investing decisions. you're here to buy a car.
2:29 pm
2:30 pm
hi everybody. i'm sue herera. here's your cnbc news update at this hour. house members gathering on the
2:31 pm
steps of the capitol to remember the victims of 9/11. afterwards they followed a senate and approved a bipartisan bill that would allow families of september 11th victims to sue the saudi arabian government. the white house says president obama will veto the legislation. general motors recalling 4.3 million vehicles worldwide to fix an airbag software defect that has been linked to at least one death. the recall includes 2014 through 2017 buicks, and 2015 to 2017 chevrolet tahoe, suburbans, z r sil silverado. hinckley will be released tomorrow. he'll live with his mother. lobster prices in north america reached their highest point in more than ten years last month. the wholesale price for 1.25 pound lobster hit $8.50. consumers shelling out about $9
2:32 pm
to $11 per pound for a live lobster on the retail level. it's a crustacean crisis. that's the news update this hour. ty, back to you. sue, thank you very much. let's get to jackie deangelis at the nymex. >> closing under $46 a barrel a move to the downside of more than 3% today basically after that inventory number, the knee jerk reaction yesterday, it's not surprising to see some profit taking here especially heading into the weekend. but people are also reconsidering the data we got on inventories wondering if it's a one-off. we need to see a few weeks of big drawdowns like that to really believe demand is starting to pick up here to take these prices higher. additionally, weekly rig counts they were up again, up to the highest level since last february. and add to that you've got a stronger dollar today and also an equity market that's lower. remember, a hawkish fed is not good for oil prices. even though it's down on the day for the week we did see a pop of near 4%, however, and there is support at $45 a barrel.
2:33 pm
back to you. >> thank you, jackie deangelis. the selloff is holding first right now the dow jones industrial average is down by 300 points, 1.6%. nasdaq composite down by almost 2%, the s&p 500 losing 41 points on the day. let's get to bob pisani on the floor of the new york stock exchange. there's some real damage being done, bob, to certain sectors. home builders for one down more than 4% in today's session. >> yes, interest rate sensitive. so the fed eric's rosengren is reminding everyone that the market is not really positioned for the possibility of a rate hike in september. so traders are scrambling. what do they do? ed first thing they do is you buy volatility. look at the vix. vix is up around 15 now. seen moving forward these are vix futures you're looking at, but the vix contract near 15 or 16, highest level since june. second thing you do is sell interest rate sensitive stocks so you sell utilities, telecom and consumer staples. by the way, home builders as melissa mentioned you sell them as well. the third thing you do is play a steepening yield curve, that's why financials have been
2:34 pm
improving recently. particularly life insurance companies, global financial like deutsche bank and citi group not down nearly as much as the rest of the market. the third thing that you might want to do, fourth thing really is bid up the dollar here. so the dollar rise is hitting commodities and commodity stocks, all of them if you look at major material names, see the steel stocks and global material names, vale, rio tinto, all down more than the rest of the market. who wins through all this? professional traders who are desperate, desperate for any kind of volatility who've had a terrible summer, love this kind of action. here's the problem, michelle, if the fed does nothing in september, all these trades you're seeing today, they get unwound. and we're back to essentially where we started a couple days ago. back to you. >> right. and we've seen that before. >> exactly. >> thanks, bob. >> okay. let's get back to brian. he's in oklahoma. brian. >> yeah, michelle, thank you. i guess be careful what you wish for, right? almost two months without a 1%
2:35 pm
move and suddenly we get one and it's more than a 1% move. let's talk oil and gas. pleased to be joined by the ceo of devon energy dave hager. biggest in oklahoma and in the stack which is why we're here, that long acronym. thank you for joining us. >> thank you, brian. >> i know many cnbc viewers and people thinking of buying your stock have a simple question, can you make money at $45 a barrel? >> we can make money in the stack play at $45 a barrel. we're blessed as a company to be involved in some of the best places for the unconventional play on shore north america. stack is one of those places. we certainly can there. we're doing the same thing out in the permian basin. but not all areas can you make money at $45 a barrel. so we're thinking pretty good shape but still a lot of challenges for the industry at this price. >> so overall you look at it say
2:36 pm
permian in texas which we've been to and talked about, s.t.a.c.k. in oklahoma, 45 is profitable. how much resources then do you commit to here? >> we're currently this year committing about 40% of our total resources of the company to the s.t.a.c.k. play and to oklahoma. another 25% is going into the permian basin out in particularly the delaware basin in southeast new mexico and the rest is scattered amongst some really high quality plays we have elsewhere around the country. >> you know, we were on a rig yesterday, not one of yours. we were on a rig yesterday, one of your competitors. and we learned something amazing, at least to me it was. which is that the average well cost in two years has gone from, and this is their company, $8.5 million to $6.5 million, and more impressively drilling time 21 days to nine days. that's remarkable to me. how have you guys done? >> absolutely. >> what's your well cost? >> our average well cost is around $6 million in the s.t.a.c.k. play. same type thing. we've reduced about 40% of our
2:37 pm
well costs from the peak. about half of that is due to lower service costs from the vendors. the other half is efficiencies we've generated internally in the company. let me give you one example. we have a 24/7/365 drilling control room where we manage the function and the operations of that rig from our building over here just a couple miles away. so that has allowed us to greatly increase efficiency. and we're drilling at 10,000 feet vertical going 10,000 foot lateral and drilling to a 10 to 15 foot tolerance as we do that. so it's pretty remarkable technology. >> i'm going to ask you to predict the price of oil. do you see price of oil meaningly acceleramea meaningfully accelerating? >> we think we're at a slow increase. there's going to be a lot of volatility that's going to take place. i don't see a rapid move up any time in the next 12 months, but i think once we get 12 months out, late '17, early '18, i think that's when you'll start seeing meaningful signs of the
2:38 pm
recovery. >> the reason i ask is when -- say if/when prices go up, whatever view you do, the efficiencies you've captured, cost savings, how many will remain so if oil is back at $60, your profit margins also go up? or will the cost rise the same and margins will stay about the same? >> brian, we're not through with the efficiencies. we're continuing to generate efficiencies. and we're confident if oil prices move back up to $60, we'll be able to offset any service cost increase for drilling rigs, completion crews, et cetera, by additional internal efficiencies we're continuing to generate. >> guys, i need to ask this one more important question because you referenced your building. devon has the tallest by far building in the oklahoma city skyline. you want that building also to be standing. we talked about earthquakes earlier. i'm not going to put you on the spot because you are largely out of the regions where the quakes are centered, but as an oil and gas ceo, what is your reaction to the quakes? what are you doing? are you working with the state on this issue? is there a fear the state could
2:39 pm
shut everything down? >> well, first off, this is a very serious issue for us and the state of oklahoma. our employees live here, we are citizens of the state of oklahoma, we care deeply about this issue and i can tell you we here at devon care deeply about this issue. we are working very closely with the state around this. we're not the experts on what's causing these earthquakes. we cooperate very closely with the state. the oklahoma corporation commission. we're also supporting research in a number of different places including stanford university to figure out what is going on here, what is the cause. as you said, brian, they're taking places largely where we're not active at this point. >> are you worried they'll shut everything down? >> no, we're not worried. we think the oklahoma corporation commission is a very sophisticated organization. and they understand, for instance, the s.t.a.c.k. play you have very low levels of produced water associated with that that needs to be reinjected as compared to where the earthquakes are taking place in what's called the mississippian
2:40 pm
play, it has much higher levels of produced water that need to be reinjected. they understand that. >> dave hager, ceo of devon, thank you very much for addressing that issue as well. when you look at this and look at a map, believe it or not this is how we were talking last night at dinner the different plays, the s.c.o.o.p. and the s.t.a.c.k., this mississippi linin credibe incredibly intens. dave hager, thank you very much for joining us. we'll send it back to englewood cliffs. thank you, brian. we're firmly in selloff mode though off the session lows. dow down by 284 points, about 50 points off the lows. verizon is the biggest drag so far on the dow. the nasdaq is still down by about 1.9%. s&p 500 seven points off lows down by 39 points. volatility is back as well. the vix as you can imagine spiking today to the tune of 28%. we got the key levels you need to watch from here. don't go anywhere.
2:41 pm
"power" is all over this selloff. remember here at ally, nothing stops us from doing right by our customers. who's with me? i'm in. i'm in. i'm in. i'm in. ♪ ♪ one, two, - wait, wait. wait - where's tina? doing the hand thing? yep! we are all in for our customers. ally. do it right.
2:42 pm
upgrade your phone system and learn how you could save we are all in for our customers. at vonage.com/business
2:43 pm
markets in selloff mode at this hour bill griffith. let's go to new york stock
2:44 pm
exchange where bill is standing by with art as well. we've seen this before the programmatic change happens some time between two and three and could be a very different story going into the final hour. >> what are you expecting, art? >> right now indications are that there will still be sellers on the bell. and not insubstantial. viewers are warned that that can change from minute to minute before we get to the close, but as of now for the close it's looking about 70% to 75% of the orders are leaning to the sell side. >> guys, we've got these head fakes before where we thought interest rates are finally going to go up, 10-year is finally rising, stocks sell off and it's all for not and you should have bought. any guesses, art? mike santoli, any history about when you can tell us? >> i'm thinking last september. >> yeah. >> there was anticipation they were going to raise, a lot more geopolitical stuff going on as i
2:45 pm
recall, china has devalued and so forth in august, but it reminds me of last september, mike. >> we are coming off a very narrow market for the last couple of months here. >> exactly. >> so whether this is the lasting final increase in interest rates that everybody's been calling for for years totally hard to say, however what you can say is bond yields and of course stock indexes have broken out of that range that bill talks about. it was about 1.63% on the 10-year yield that's kind of contained the bond for a while now. we've broken above it. of course global yields going up, so, yes, it could actually be a head fake. it's hard to say that the stock market sitting 2.5% below all-time highs is signaling anything particularly dramatic at the moment. but it definitely shows you stocks and bonds going down together is not something that that many people were positioned for. >> and it's not kind of a market where you can say, well, it's the cyclicals that are taking the hit opposed to defensives. everybody's getting sold today, art. >> yeah, to the point of last september, the argument there was far more widespread.
2:46 pm
you had the b.i.s., imf, economist magazine all calling out to the fed stay thy hand, don't do anything. and that's why despite the market's opinion that it might happen, the fed heard that call. they're not quite in the same spot right now. i still think it would be a foolish move, but the fed can do certain things. >> but if the selloff gets bad enough, art, do we do that all over again? does the fed say, oh, gosh no, we've spooked the markets now we can't do it. >> that's what happened last september. >> yeah, well, we're down 300 points on a hint. >> right. >> where would you be on the fact? you could be down 1,000 or more. so i think they should be monitoring how the markets are looking at this. we've only moved the chance of a september hike to a one out of three from a one out of four. so it's not overwhelming yet. >> i think the context too though, mike, is people will remember back to the first rate hike in december. markets went down, stabilized and then took another leg lower.
2:47 pm
i mean, people are a little bit leery about it because of what we saw -- what we've seen when the fed actually hiked. >> yeah. we don't feel particularly stress tested for this scenario. and i think that's probably true. in terms of just the general muzzle memory. however, coming into this week markets were positioned in general in a stronger place versus where we were both last december and september. if you remember in december people said, you know, the fed's never hiked rates with the vix at 20 or above. vix was 20, and they went. so now we've been much below that, and in theory especially if you look at credit markets, to me that's where the fed wants to see signs of contagion or financial conditions tightening. that's really not kind of at the center of what's been going on right now. >> there was a sense that maybe there was complacency in this market when you had the vix around 11 for as long as we did. 11 and 12. but i think given today's selloff maybe there was just a lot of anticipation that once there's a hint, i'm out of here, right? you know?
2:48 pm
>> they absolutely were ready to move on that. because no one believed that the fed was going to do it until we had rosengren and gundlach. >> thanks, guys. >> see you at the top of the hour. >> see you. last hour of power, dick bove made his call to sell wells fargo. we're going to hear from an analyst next who disagrees. plus emerging market etfs up 14% in the past six months but falling sharply today. is the run done? much more on the markets when "power lunch" continues.
2:49 pm
2:50 pm
great time for a shiny floor wax, no? not if you just put the finishing touches on your latest masterpiece. timing's important. comcast business knows that. that's why you can schedule an installation
2:51 pm
at a time that works for you. even late at night, or on the weekend, if that's what you need. because you have enough to worry about. i did not see that coming. don't deal with disruptions. get better internet installed on your schedule. comcast business. built for business. business model of wells fargo, not just the past ten years but almost the past two decades has been based around this theory that we can grow our earnings basically by selling more products to our existing customers and we have the ability to bring in new customers. and what, you know, we have seen today with this fine is that maybe that theory was not based upon reality. maybe it was based upon an over aggressive sales faers and possibly we have accounts that shouldn't have been on the books. >> 2 million according to news
2:52 pm
accounts. that's dick bove last hour saying why he slapped a sell rating on the stock. there's a buy rating on the stock by paul. good to see you. you disagree with mr. bove. tell us why. >> it's a very large company. 2 million sounds large and relatively overall franchise not that large and the fees it represents is about $2.5 million. it's a very small and reimbursed. already self policed themselves, took care of this. got rid of the rogue traders or brokers that were doing this stuff and already gone so this is also i think a -- they're a victim of an over regulatory environment in washington, d.c. banks are an easy target. regulators came after them. a very large fine. >> but the spirit -- >> it could be gone in a week. >> the spirit of the criticism is historically, it's traded at a premium relative to peers
2:53 pm
better at cross selling, getting the customers to have more products. >> yes. >> and the fact of so many fake products out there suggests that maybe that wasn't a reality. he questions the business model at this point. you don't? >> no, i don't. you go back to how many fees have they overcharged the customers? that's a rounding error for wells fargo. i would sit there and say if you looked at any of the banks, you would find some of the same problems. you have a very large sales force. some of those people in them overstepped the bounds, added extra accounts and have been -- have gone now. the money's been reimbursed and it's not -- still one of the best cross sellers out there. i don't think they'll back off on the cross sells. i don't think the business model is at question. >> we want to see a day of a selloff at the hipt of a fed rate hike which would in theory help the financials. are you comfortable in telling
2:54 pm
investors to be buyers of them right now? >> you know, these guys had a nice run on the thought, the fed was going to raise rate s and kind of surprised they're down on the overall tape. there are those that are up on the day. higher rates will help short end on the banks and banks focusing on commercial cni loans. we need a steep yield curve. the 10-year is up today. that's what the banks need, they need it up 100 to 150 basis points to take advantage of an a growing economy if you want to say it but this is a small move. not a major impact to the banks. >> i take your point on that, paul. and lord knows you have been here and we respect you. you've been here a lot of times but yet another example of banks behaving badly. may not material to a company, the scale of wells fargo but i
2:55 pm
don't see how you see this as regulatory overreach, number one. i like to know how you feel personally if you found out that your bank was opening an account to generate more fees, an account in your name, creating false credentials to siphon more money from you. >> you know, i'm not going to sit there and say if my bank did that i wouldn't be upset but if the bank apl apologized and said it was done by a teller that's fired, i want to take a different view there. if you think that other companies don't cross the line or -- >> i know they do! >> they do. and, you know, and they are -- you know what? wells fa wells fargo policed themselves. >> if i found out that they had been doing this, i would get my account the hell out of there.
2:56 pm
i don't care if they fired the people. it's a cultural issue. >> i bet you would find a lot of that in a lot of banks today. >> maybe we should look. >> i'm sure the regular la or thes are looking at this more deeply than they did. >> all right, paul. thank you. >> you're welcome. >> don't move. "power lunch" is back. here's to breaking more glass ceilings in golf and everywhere else. kpmg. continuing our commitment to the next generation of women leaders. it's not just a car... it's your daily retreat. go ahead, spoil yourself.
2:57 pm
the es and es hybrid. this is the pursuit of perfection.
2:58 pm
2:59 pm
on this market sell-off day, let's go back to brian sullivan in oklahoma with final thoughts for "check please." >> really, my final thought is $45 a barrel, there are companies to make money. not a lot of them. shame on me or shame on us for not discovering the scoop stack oklahoma play a couple of years ago. they got to work out the earthquake thing. that's a big deal. hopefully they will. that's my final thought as i get on i-35 and drive to dallas. >> all right. have a good trip down there. enjoy. >> thanks. >> i guess the focus of the hour and remaining two hours, remaining hour of trading, has been the markets and the sell-off the likes of which we haven't seen in several months. >> are we seeing long-term interest rates go up for real. >> permanently. >> yes. but have we seen the bottom? as peter raised earlier in the
3:00 pm
show, a pivotal question. >> heading into the final hour of trading, decliners 18-1 on the nyse and should be an interesting final hour of the week. thank you for watching. >> "closing bell" starts right now. hi, everybody. welcome to the "closing bell." closing out the week. i'm kelly evans here at the new york stock exchange. >> i'm bill griffeth. fears of a potential rate hike slamming stocks today. just boston fed president to make the case this morning for gradual rate hikes and a rate sensitive sector, they're all getting hit today, the hardest of utilities, telecom, housing stocks in the red at hour. >> where you can find safety right now, some real safety and whether there's any opportunity amid this pullback.

53 Views

info Stream Only

Uploaded by TV Archive on